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Business Governance and Society

Effects of
Industrial and
Ms. Naheed Memon

Muhammad Zubair Qureshi ERP#12191 MBA

Since around 1750, global wealth has risen in an exponential way. The
Industrial Revolution, which began in Britain in the 18th century, is the direct
consequence of a major invention, the steam engine. Its use in cotton mills
involved a dramatic increase in production capacities. Thanks to the growth
of productivity underpinned by the transformation of technology since the
18th century but also, to the trade unions, the working class struggles and
the compromise of the dominant class emergence of the Welfare State in
Bismarcks Germany and later, post-WWII Keynesianism the standard of
living is now spectacularly higher than in the 18th century.

Technological revolutions did not have only positive consequences on

workforce. The Industrial Revolution also led to unemployment and, at the
beginning, lowers real wages. Although there was a slight improvement in
standard of living over the period 1790-1840, there was intensified
exploitation, greater insecurity, and increasing human misery.

Amazing economic growth was due to technology! This allowed new

organization of production and economic activity. Together technological
advancement and reorganization of the production led to an increasing pace
in productivity growth. What about the Information Revolution also called
Third Industrial Revolution (The new working class organized itself in unions
and won new work and wage conditions? The cotton mill was the agent not
only of industrial but also of social revolution, producing not only more goods
but also the Labor Movement itself

Like the steam engine during the First Industrial Revolution, the Information
and Communications Technology (ICT) has completely changed the way
society organizes its economic activity. While the 18th or 19th centurys
machines replaced the manufacturing the new thinking machines have
been increasingly capable of performing conceptual, managerial, and
administrative functions and of coordinating the flow of production, from
extraction of raw materials to the marketing and distribution of final goods
and services1 (p.60). This new computer-based automation has led to a
major decline of the global labor force, whether in the manufacturing sector
or in the newly evolved service sector, which had been absorbing for more
than forty years the job losses in the manufacturing sector.

What John Maynard Keynes already called technological unemployment is

now facing the entire society. As Peter Drucker argues, in the new economic
order, the knowledge has displaced the labor and the capital as the key
factor of production.

While millions of low-skilled workers and an increasing number of suburban

middle-income wage earners feel the bite of re-engineering and the impact
of technological displacement, small elite of knowledge workers,
entrepreneurs and corporate managers reap the benefits of the high-tech
global economy. This new social order in which inequality is based on
knowledge represents a major challenge. 2 The knowledge society leads to
important employment and social issues.

Re-engineering, automation, outsourcing and off shoring have led to

unemployment, underemployment and temporary work for the blue-collars,
the African-Americans in the US or the suburbs inhabitants in France- The
education system, the social contract, the income redistribution, the working
time and the whole role of state have to be rethought in order to take on the
challenge of the knowledge-based society in a high-tech global economy and
globally all low-skilled workers.

The reorganization of production is now also threatening the most important

political group in developed countries the middle class. Job insecurity leads
to big issues in terms of social cohesion, violence and crime.
The modern workforces living conditions are so much better than in the 19th
century that it is irrelevant to compare the current standard of living with
that of the First Industrial Revolution. For that matter, we must recognize
that the industrialization process and its underlying dramatic economic
growth have a very beneficial long-term effect on workers condition. The
growth of productivity and wealth were necessary conditions, but not
sufficient ones.

The working class of the 19th and 20th centuries struggled through trade
unions and political parties. The emerging communist countries all around
the 20th centurys world and the fear of socialist revolutions might also have
led to the social compromise, fairer distribution of wealth and the Welfare
State. And we said, the comparison of both revolutions in terms of wages or
living conditions is useless. However, we may compare the evolution of
wages, unemployment and standard of living during these two
transformations processes.

For the moment, in the developed countries, the majority of the workers is
still employed and still has good living conditions. However, we have been
entering in a global process of re-engineering, worldwide reorganization of
production using new information technologies and the automation to lay off
developed countries workers in order to reduce labor cost and thus increase
the profit margins and the stockholders dividends.. The new urban
underclass is growing up and leads to dramatic consequences on social
cohesion and security. In a world where automation is putting more and more
workers in the manufacturing and services sectors out of a job, the Workfare
State has created a new urban marginality.

As we have already seen, it is the union of all workers and their struggles
which compelled the upper classes to make concessions. Finally, we must
realize that labor has totally changed. Thanks to automation, almost all
manufacturing production is done without workers, and services need less
and less workforce.

The knowledge sector will remain the only one to need human intelligence;
at least until the thinking machines are intelligent enough to displace the
knowledge workers.

Our societys challenge is thus to educate people in order to have high-

skilled workers. This requires a remaking of the education policy. For the
other workers, as Rifkin suggests, the development of the social sector or the
reduction of the work week3 are possible solutions. The sharing of
productivity gains and the redefinition of the social contract might also bring
down the increasing poverty and the precariousness. The actual issue is how
we want the production gains of the Information Revolution be distributed,
how we want the coming world be.

Egypt and the Industrial Revolution
At the start of World War 1, Egypt was seen as being far ahead in economic
development as measured by agricultural output, foreign trade, transport
facilities, and, to a
lesser degree, employment in industry.In 1913, Egypts GDP per capita was
higher than Japan, more than double India.

Egypt also experienced a positive trade balance (7 million) as well as strong

communication channels in terms of modern transport and trade routes. In
particular, Egypt was strong on railway connectivity. Building the railways in
Egypt started
in 1853 -- far ahead of other underdeveloped countries, and indeed
developed countries like
Sweden and Japan. By 1913, relative to its inhabited area, Egypt was as well
provided with
railways as any country in the world and relative to its population, it was
better off than
most. The railways were used mainly for transporting Egypts main export
crops (cotton, rice, and onions), and imports, (coal, timber, building

Except for GDP, the state of what we today call human development was
dismal in Egypt at the start of the twentieth century. In 1907, the adult
illiteracy rate was 97%,
and the quality of the existing education remained poor. Investment in
was very low. From 1882 to1901, only 1.5% of the state expenditure went to
increasing to 3% in the beginning of 1900s, then down again to 1.7% in
1920/21 (Hershlag
1980). Life expectancy was low, infant mortality rates were high and
hygienic conditions in
Egypts villages were the worst in the world

The countrys technological achievement lagged far behind any positive

economic performance. Technical skills and managers for the large
enterprises were imported from Europe; small businesses were owned and
run by the foreigners, namely Greeks, Jews, Armenians, Lebanese and
Syrians. In such a situation, income distribution was highly unequal and there
was barely a
local middle class (
Egypts positive trade balance reflected an export basket that continued to
be dominated by
agricultural goods and primary products mainly cotton. Capital goods
dominated imports,
mostly coming from Europe. In fact Egypt ended up by being an export-
oriented, lopsided
economy, with minimum structural development on the social and
economic levels.

Agriculture continued to represent the largest share in output, with very little
development in
local industry. The latter was characterized by international
uncompetitiveness, its low
productivity and its heavy dependence on imported raw materials (Owen
2002). Egypt
imported the capital and the expertise needed to run the economy.

In short, despite some positive indicators of economic growth and strong

connectivity, at the
start of World War 1 Egypt suffered serious shortages in several other
aspects of economic
and more generally human development. Most importantly, what Egypt
went through in the
nineteenth century was a massive expansion in its railway connectivity that
was not
accompanied by a similar investment in human capital. Not surprisingly, this
expansion in
transport routes did not trickle down into a tangible developmental impact
on the economy: a
development of feeding industries, no use of the transport channels to
export high value added
products, limited investment in education, training and developing
indigenous technological
capacity. The pipes continued to be used for exporting primary products
and importing
capital goods along with foreign expertise.

Egypt and the Information Revolution

Just as Egypt was ahead in railway connectivity more than a century ago,
Egypt has recently
embarked on an ambitious plan to strengthen the infrastructure of
information and
communication technologies (ICTs). ICT expenditures soared in the second
half of the
nineties. Since 1999, the Egyptian Government has taken several initiatives
to expand ICT connectivity: the free Internet, Personal Computer for every
home, and Personal Computer for every student, laptop for every

Between 1999 and 2004, the number of fixed telephone line subscribers has
almost doubled (from 4.9 million to 9.35 million lines), mobile telephone
users have increased from 654 thousand to 6.8 million, Internet users have
increased from 300 thousand to 3.7 million, communication capacity has
increased from 20 million bit/second, to 1285 million bit/second (Ministry of
Communication and Information Technology 2004). Egypts data on
teledensity, waiting lists, communication costs, radios and television sets
were by far higher than the average for the Middle East and North Africa in
2001 .As far as ICT connectivity is concerned, Egypt can be considered a
leader in the region, a status that is perhaps reminiscent of the railway
leadership in the nineteenth century.

Egypts current state of human development continues to lag behind. The

country falls at the end of the third quartile under medium human
development nations. Its

Human Development Index ranking among 177 nations has deteriorated

from 115 in 2000 to
120 in 2002 (UNDP 2001 & 2004a).Egypts GDP per capita rank minus HDI
rank is a negative 12, which means that Egypt has been doing relatively
better on GDP account than on human development, when education and
health indices are included (UNDP 2004a). The adult illiteracy rate continues
to be high (45%), and 21% of the population aged 15 or higher possess a
secondary or higher education (UNDP2003).

The quality of education is generally poor, and private lessons are the norm
rather than
the exception in government and indeed private schools which follow the
state curricula. While
health indicators are overall above average for other developing countries
(UNDP 2004b), the
quality of health services remains generally low.

Egypts announced rate of unemployment is 10%; and sadly the percentage

of the unemployed
is highest among holders of secondary school education (22.4%). Almost 9%
for university
degree holders are unemployed, while only 1.5 % out of below secondary
degree holders is
unemployed (UNDP 2003). Such unemployment of the educated poses a
threat to human
Egypt continues to have large income disparities. Almost 44% of the
population lives below $2
a day. The share of the richest 20% of the population in income is 44%, while
that of the
poorest is 8.6% (UNDP 2004b).